2023-04-25 06:21:31 ET
Summary
- Baidu isn't being valued based on the burgeoning robotaxi business.
- The Chinese search leader is hardly valued based on a solid online marketing business that should rebound with the reopening of the Chinese economy.
- The stock shouldn't trade at only 11x '24 EPS estimates with tons of upside from a ramping robotaxi business.
As the Chinese economy thaws from the tough covid restrictions, Baidu ( BIDU ) is poised to heat up. While their online marketing business should see huge improvements, the most promise could come from their robotaxi business. My investment thesis remains ultra Bullish on the Chinese tech giant trading back down at multi-month lows around $125.
Source: Finviz
Robotaxi Boom
As detailed in the previous research, Baidu is already making meaningful progress towards a full robotaxi service. The Chinese tech company already offers such services in the megacities of Beijing, Wuhan and Chongqing.
A prime example of the massive robotaxi opportunity is the valuation ARK Innovation ETF ( ARKK ) assigns to the valuation of Tesla ( TSLA ). The investment research firm predicts Tesla will hit $2,000 by 2027 with 58% of the $6.1 trillion enterprise value assigned to the future robotaxi business.
Source: ARK Invest
ARK Invest predicts Tesla will generate more revenues from autonomous ride-hailing services than from selling electric vehicles. The firm predicts the ASP for an EV will dip over 50% under the bull outcome to $26,000 with Tesla earning $613 billion in annual revenues from the full-self driving software sold to drivers. The EV company will generate an estimated $528 billion from selling the discounted vehicles with the FSD service only launched in late 2024.
While Elon Musk has discussed the ride-hail business as a major future asset, the details of such a service are still very murky. The important key here for Baidu is that the Chinese company has already launched a robotaxi service in China last year. The company has a major head start on Tesla, though Baidu doesn't have the manufacturing capacity of the EV giant.
Our previous research had pointed out the potential in the robotaxi business to quickly ramp up to billions in revenues. My estimates pales in comparison to the billions forecast by ARK Invest with our focus on a limited target of 1,000 robotaxis in 2025 to only replace 5% of the taxi market.
As a prime example, Baidu launched Apollo Go with a total of 10 fully driverless vehicles in Beijing Yizhuang Economic Development Zone. The company has a long way to go to reach 1,000 robotaxis on the market, but Baidu is far ahead of other services like Tesla still predicting a future start.
Not Priced For Growth
The crazy part of the investment story for Baidu is that the company hasn't produced consistent growth for years now. The Chinese tech giant has produced periods with 25% sales growth followed by negative revenues due to multiple covid hits and prior Chinese regulations on online marketing.
The lack of growth has analysts only forecasting Baidu will produce annual sales growth in the 10% range. The stock actually trades around 10x forward EPS targets of $11 in 2024 due to years of struggling to consistently grow.
Baidu even has an insanely low enterprise value with a net cash balance of nearly $15 billion. The market cap has dipped to just $45 billion despite the promising AI unit and the burgeoning robotaxi business, possibly the global leader in autonomous driving.
At this point, shareholders just want to see consistent growth. The company doesn't need a home run in the AI space to reward shareholders.
The online marketing business alone could return to impressive growth with signs the Chinese market is about to report explosive growth again. Remember, Google ( GOOG ) generated $43 billion in Q4'22 search revenues alone while Baidu has seen limited growth with online marketing sales just hitting $10 billion in 2022 due to volatile covid restrictions hurting the Chinese economy.
Takeaway
The key investor takeaway is that Baidu isn't correctly priced for the online marketing opportunity with the Apollo Go business a big bonus. If Baidu as a leader in robotaxis ever approaches the revenues potential forecast by ARK Invest for Tesla, the stock will be home run here.
Investors just need the company to start producing consistent growth to reward shareholders via multiple expansion.
For further details see:
Baidu: Set To Heat Up